Katrina losses predicted to exceed 9/11

Hurricane Katrina is expected to result in $40 to $55 billion in private insurance payments, according to a new white paper developed by the Tillinghast and Reinsurance businesses of Towers Perrin. “Katrina will displace the September 11th terrorist attacks as the single most expensive insured occurrence in the U.S. to date,” Patricia Guinn, managing director, says in a press release. “The consensus estimate for September 11th insured losses is approximately $35 billion; Hurricane Andrew produced $20 billion in insured losses. “Perhaps the most worrisome lesson from Katrina is that losses measured in the tens of billions are becoming much more commonplace due to the growth in coastal property concentrations. All sectors of society including insurers must prepare for this new reality.” Tillinghast expects that individual lines of business will experience the following losses: – Personal lines: $15.2 to $19.3 billion – Commercial lines: $19.7 to $25.3 billion – Marine and Energy: $4 to $6 billion – Liability: $1 to $3 billion – Other: up to $1 billion.”We expect the insurance market to react to these losses somewhat differently than it did following Hurricane Andrew and September 11th,” observed Stephen Lowe, leader of the firm’s global property and casualty insurance consulting practice. “Now, the market is coming off of a three-year hard market with reasonable profitability.”Although softening had started to appear, we believe this trend toward lower pricing will reverse selectively, particularly in property catastrophe and property per-risk reinsurance, along with energy and marine.” Towers Perrin’s white paper suggests the reinsurance market will absorb roughly 50% of the losses from Hurricane Katrina significantly more than in 2004, when reinsurers bore 25% to 35% of the losses from the four hurricanes that hit Florida. Katrina and Rita will cause rating agencies to take a careful look at plans to replenish capital, the report predicts. Tillinghast expects rating agencies to urge companies writing catastrophe-exposed business to improve risk management systems and controls and to provide stronger capitalization to support increased risk.